Tuesday, February 25, 2020 | special comment Agora – CEO of Cinemas on Near-Term Outlook Rating: buy | target price: PLN 17.00 | current price: PLN 13.00 AGO PW; AGO.WA | TMT, Analyst: Paweł Szpigiel +48 22 438 24 06

Highlights from Mr. Jagiełło's interview for PAP: ▪ One of Poland's largest movie chains, , has waged ▪ Box-office sales will most likely be flat this year as a price war by slashing ticket prices at more than half of its audiences stay home to watch UEFA Euro 2020 matches. locations since 2019, and Helios has identified locations ▪ 2019 was a record year at Polish cinemas with 61.7 million among its own cinemas that can respond with similar total admissions versus 59.7 million the year before, measures if necessary. boxoffice.pl reports. Nevertheless Mr. Jagiełło points out ▪ Helios's film distributor, Next Film, has fewer releases lined that, with per-capita ticket sales now higher than in up for 2020 after already releasing two major Polish titles Germany, the Polish cinema market may be nearing early in the year. saturation. ▪ The food service business is expected to have more of a ▪ Citing a slowdown in the real-estate development market, neutral impact on Agora's financials this year after among other reasons, Helios might not be able to achieve spending most of the planned budget in 2019. the 380 target screens assumed in Agora's strategy plan ▪ Agora continues to develop the Pasibus burger bar concept through 2022. At the moment, the chain consists of 277 after better-than-expected sales from the first locations. screens in 49 locations. ▪ At the same time, the Foodio Concepts unit responsible for ▪ Aside from new openings, Helios is investing in projects to the fast casual restaurant concept is focusing on leverage existing potential, e.g. by adding 'Helios Dream' developing the Papa Diego brand after the Van Dog VIP-seating rooms in current locations. locations failed to attract enough customers. ▪ In 2020 Helios will open three new cinemas in Żory, ▪ Mr. Jagiełło's skepticism as to the 380-screen target Ostrów Wielkopolski, and , and it is working on that Agora set Helios for 2022 is consistent with our adding locations in , where the ratio of movie view, which assumes that the screen count by then screens per resident is currently the lowest of all cities in will be closer to 340. On the other hand, we have a Poland. Warsaw has plans for 8-10 new multi-use more positive EBITDA estimate for 2022 at establishments, and Helios would like to have a cinema in >PLN 90m than Helios's own target of PLN 81.7m, at least a part of these new spots. which we consider to be conservative. Helios can ▪ Mr. Jagiełło is confident that Helios can achieve its revenue leverage Poland's rising salaries to attract more target of PLN 507.3m, and deliver EBITDA of PLN 81.7m, in traffic to its cinemas, and although the talk of a price 2022, indicating respective increases of 44% and 36% war in the cinema market does raise a flag we do not relative to 2017. expect Helios to have to cut prices yet in 2020. We ▪ According to Mr. Jagiełło, Helios is able keep margins at like the way things are going in the food service satisfactory levels by leveraging economies of scale and business, and as the start-ups mature and deliver employing efficiency measures to offset rising costs, in diminishing losses Helios might see PLN 5-6m higher particular costs of employment and electricity. EBITDA in 2020.

List of abbreviations and ratios contained in the report: EV – net debt + market value (EV – economic value) EBIT – Earnings Before Interest and Taxes EBITDA – EBIT + Depreciation and Amortisation PBA – Profit on Banking Activity P/CE – price to earnings with amortisation MC/S – market capitalisation to sales EBIT/EV – operating profit to economic value P/E – (Price/Earnings) – price divided by annual net profit per share ROE – (Return on Equity) – annual net profit divided by average equity P/BV – (Price/Book Value) – price divided by book value per share Net debt – credits + debt papers + interest bearing loans – cash and cash equivalents EBITDA margin – EBITDA/Sales

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Research Department

Kamil Kliszcz Michał Marczak Michał Konarski director +48 22 438 24 01 +48 22 438 24 05 +48 22 438 24 02 [email protected] [email protected] [email protected] strategy banks, financials energy, power generation

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